Why does F2Pool support EIP-1559?

Article title: Staying on the (b)right side of history: EIP-1559

Original author: JK, F2Pool

Original translation: Rhythm 0x49

Chun, founder of Stakefish and co-founder of F2Pool, recently gave a speech at ETHDenver titled "Why Miners Should Embrace EIP-1559". In the speech, Chun announced that F2Pool will officially support EIP-1559. In this article, F2Pool will explain in detail why it supports the EIP-1559 proposal that can change the Ethereum ecosystem.

Ethereum Current Status

As we all know, Ethereum has been in a high-growth mode for the past two years. Previously, many people thought that the IC0 craze in 2017 was only temporary. However, at present, this is just the tip of the iceberg on Ethereum's road ahead. With the plunge in early 2018 and the subsequent bear market, ecosystem builders did not stop. They created DeFi, DAO, NFT and other ecosystems on Ethereum. The public did not react until early to mid-2020 and shifted their attention to the ecological applications built on Ethereum. The most obvious evidence is reflected in the on-chain data. The number of transactions on the Ethereum chain has exceeded the peak level in 2017.

Image source: bitinfocharts

The value of Ethereum block transaction information is increasing, and at the same time, the demand for block packaging is also increasing. This can also be seen from the soaring gas fees. However, we have not seen the gas fee drop below 10 gwei yet.

Ethereum gas fee, source: livdir

Lowering gas fees to a manageable level is not the core issue explored in this article. Because Ethereum is currently working on launching Ethereum 2.0 as a long-term solution to scalability issues. Currently, there are Layer2 networks that are ready or coming soon, which will alleviate the scalability issues of Ethereum applications until Ethereum 2.0 is launched. This article will explore how we can provide a better Ethereum experience for users and builders. The stakes have never been higher for getting transactions included.

As time goes by, it is expected that gas fees on Ethereum will continue to rise, but this is art rather than science. In times of volatility, new trading opportunities, interesting NFT or token sales, and fluctuations in Bitcoin and Ethereum prices, gas fees become unpredictable. In order to ensure that the transaction is successfully included in the block, users will endure wildly fluctuating and unpredictable gas fees, as well as longer than expected queue times. Sometimes the worst case scenario occurs, the gas fee is exhausted, the transaction fails to be included, and Ethereum is lost for nothing.

Solution: EIP-1559

There are already a lot of articles ("EIP-1559 Proposal", "Will EIP 1559 bring Ethereum fork candy? Why miners finally choose to support it", "The last puzzle piece in Ethereum monetary policy", "Vitalik's comments") about EIP-1559. In short, the core of EIP-1559 is to change the way gas fees are paid to miners. At present, miners package transactions mainly by selecting transactions with high bids (i.e. higher gas fees) in Mempool (transaction memory pool) for packaging.

In the EIP-1559 proposal, gas fees will be divided into two parts: base fee and tip. The base fee is the minimum price that users must pay in order to package their transactions into the block. If the EIP-1559 proposal is passed, the base fee will be destroyed. If the gas fee contained in the block exceeds the limit of 12.5M, the block will increase the limit and the final upper limit of gas fees will be 25M. Tips can be considered as additional rewards given to miners. Once the gas fee reaches the final upper limit of 25M, miners can sort and package according to the tip fee, similar to the current first price packaging.

Although experts say that EIP-1559 has many advantages, we would like to emphasize that EIP-1559 has one advantage: improving user experience.

For programs and users, EIP-1559 makes gas fees predictable, and gas fees can be accurately estimated by observing the base fee of the block in which the transaction is packaged, rather than being packaged at a price higher than the current average gas fee.

EIP-1559 is mainly led by Tim Beiko, who is a staunch supporter of EIP-1559. At the same time, he is also listening to different opinions from the community. According to his judgment, from a technical point of view (Tim Beiko's EIP-1559 Github), there are still some problems to be solved before the launch of EIP-1559. Ethereum EIP-1559 may be launched as early as the "London" hard fork in July.

These are the known facts about EIP-1559, and next we will explore why we think the proposal should be supported.

Controversial EIP-1559

The largest group opposing EIP-1559 is Ethereum miners. There is some truth in miners’ opposition to EIP-1559, as the destruction of base fees will lead to a reduction in their income. Of course, there is no complete economic analysis of miners’ income after the launch of EIP-1559. Setting up a mining business is challenging, and the uncertainty of gas fees also brings a new problem to the future planning of the business.

As a result, many mining pools have publicly opposed EIP-1559, most notably our fellow PlanetFirePool and Ethermine.

The current debate over the proposal shows the coordination problem of the Ethereum community. It is a very good thing to be able to discuss EIP-1559 before it is officially launched. In this matter, both opponents and supporters are right.

The Ethereum ecosystem needs both advocacy from the core team working to improve Ethereum and the difficulties we, the miners and mining pools, face on proposals, as well as protests and suggestions.

We then make decisions based on what we have and the facts.

Why we support EIP-1559

Ethereum is an ecosystem with many stakeholders, each of whom has contributed to the system in their own way and has paved the way for the current path. Ethereum core contributors and development teams paved the way for Ethereum, an excellent public chain after 2014-2015. Miners had full confidence in this early version and ensured its safe operation when there was no ecosystem construction. Miners played a key role in ensuring the security of early Ethereum and subsequently attracting developers to join its ecosystem.

There are now tens of thousands of applications and a large number of builders on the Ethereum ecosystem. Now, the status quo has shifted, and builders and users are driving the value of Ethereum and consolidating its leading position in the world of decentralized applications.

Miners have benefited from the growing use of Ethereum. Although the block reward has dropped from 30,000 ETH per day in 2016 to 13,000 per day today, miners' block reward income has increased from $300,000 per day (calculated at $10/ETH) to $23.4 million per day today (calculated at $1,800/ETH) in fiat currency. This does not include the MEV (miner extractable value) opportunities generated by the popularity of DeFi.

Now, users and ecosystem applications on Ethereum are calling for EIP-1559 to improve the network.

Historically, we have already been taught a lesson once and paid a heavy price for not uniting core users and contributors. After The DAO hard fork, key developers and core contributors built on the current Ethereum and helped it thrive to this day. Ethereum Classic (ETC) is still a growing ecosystem, but its appeal in terms of usage and applications has lagged far behind Ethereum.

Today, the community and core developers support the development of Ethereum, including support for EIP-1559. It is important to stand on the side of users and core contributors.

Another reason why we believe that EIP-1559 must be launched is market expectations. The value generated by launching EIP-1559 is likely already included in the current ETH price. Most community members, including investors, are optimistic about the launch of EIP-1559 and hope that the proposal can play its role. Because this expectation is reflected in the ETH price with extremely high expectations. If the proposal is not passed, it may be detrimental to the short-term price of ETH. A drop in the price of ETH may trigger a series of events that lead to further liquidations in centralized and decentralized markets. Ultimately, miners will also be affected because their income is determined by the price of Ethereum.

We are still willing to hear more about EIP-1559. We will always keep an open mind and be happy to participate in fruitful discussions. So far, the only counter-arguments to EIP-1559 have focused on short-term miner revenue loss. Based on this, F2Pool fully supports EIP-1559 and promotes the passage of the proposal. We hope that miners and mining pools will join us and stand on the right side of Ethereum history.